Opening a new HELOC during the Coronavirus

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CT-Scott
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Opening a new HELOC during the Coronavirus

Post by CT-Scott » Thu Mar 19, 2020 3:25 pm

Hello all,

In light of the craziness going on in the world right now, I'm thinking that I'd like to open up a HELOC just to have some added liquidity, in case we need it. I have several questions:

1) I've read some recommendations (in this forum) for Third Federal S&L. They have an APR of Prime - 1.01% (currently advertising 2.24%), 10 year Draw Period, 20 year Repayment Period, LTV 80%. If anyone has any other recommendations (especially in light of my other questions), let me know.

2) What's the process for them appraising your house value? See the bottom of this post for more details on why I'm a bit concerned about my house's current value.

3) I worry about a bank reducing/closing a HELOC if things get worse (this happened in 2008). Is there any particular reason why I should not worry about that this time? Or, is there some strategy I might consider to ensure that I'm protected from that? (e.g., immediately write myself a check for the full amount, realizing that this would mean that I'd have to immediately start making monthly payments/interest)

4) Our current mortgage is through Wells Fargo. Would it be better/worse/indifferent for me to get the 2nd mortgage through them? Their rates aren't anything special, but since they were were the ones who held the mortgage the last time we did a refinance, I'm thinking that they may have that last appraisal on file and maybe that would work in our favor for how they'd currently determine its value.

5) I'm assuming that requesting a HELOC will initiate a hard-credit check, right? I believe if that's the case that I can apply for HELOCs from multiple lenders within a certain timeframe without it further damaging my credit score. Let me know if I'm missing anything there.

************************************
Optional reading:

More background on why I'm worried about what my house's appraised value might be:

I worry a bit, because we moved into our house late 2008 when the market was tanking. The prior owner had originally listed it far higher, and over time knocked quite a bit off of it, so it felt like we were getting a decent price at the time, but there was actually a pretty limited selection at the time. We purchased for $400K and took a 30 year mortgage. A couple of years later we refinanced, and it was reappraised at that time for about $410-420K. We currently owe about $286K.

Although the housing market rebounded somewhat since 2008, I don't think our town (which is considered desirable and has highly-rated schools, but is also about 25 minutes from the closest major highway) rebounded as much as some others. When I look at other homes in my town I get depressed, thinking that there are quite a few houses that look like a lot more desirable $400K houses to me. So I'm worried that they could appraise it at less (who knows how much less) than the last appraisal came in at.

We actually poured a lot of money into the house due to needing to repair and repaint the clapboard siding, replacing the roof, paving the driveway (previously gravel), adding central A/C, and other things, but never got around to redoing the kitchen, so that's a bit dated (not ugly, but not up-to-par with many of the $400K houses currently selling in my area per Zillow photos). OTOH, we do have a lot more land than most houses (which may or may not be desirable when it comes time to sell, but should be a plus for appraisals). I believe that most of what I listed isn't really even a factor for appraisals, and it sounds like a lot of these companies just do drive-by appraisals.
Last edited by CT-Scott on Fri Mar 20, 2020 10:04 am, edited 3 times in total.

Topic Author
CT-Scott
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Re: Opening a new HELOC during the Coronavirus

Post by CT-Scott » Fri Mar 20, 2020 10:01 am

No replies yet? :(

Someone told me (in another thread) that I basically had too much detail in my post, so I edited it to keep the questions shorter and moved some of the added detail to the end of my post (reading optional).

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CT-Scott
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Re: Opening a new HELOC during the Coronavirus

Post by CT-Scott » Mon Mar 23, 2020 1:10 pm

Still no replies, huh?

So I was ready to pull the trigger on a Third Federal online application and then their system was pulled offline. When it returned, their rate (and factor for determining the rate) had gotten noticeably worse. It was 2.24% (Prime - 1.01%) and is now 3.19% (Prime - 0.06%).

I ended up applying with Santander, who was advertising a rate of 2.5% (Prime - 0.75%), but when I got my automated emails about that and logged in, I'm seeing a rate of 4%. I spoke with someone who said that the 2.5% rate was for someone who didn't already have a primary mortgage. I don't think that was clear in their fine print. So now I'm thinking again about going with Third Federal.

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8foot7
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Re: Opening a new HELOC during the Coronavirus

Post by 8foot7 » Mon Mar 23, 2020 1:14 pm

You are right to be worried about the appraisal and the chance that your line is reduced or frozen, but I'm not actually sure what you can do about that other than (a) take a draw at closing or (b) materially pay down your existing mortgage so that your newly opened HELOC would fit under a "smaller" or lesser LTV cap that may be imposed in the future.

Generally regulators won't let banks/FIs use appraisals that are more than 120 days old so your old appraisal won't apply.

Keep in mind if you take a full draw your credit score might decrease considerably because it would look like you took out a new, rather large loan and maxed it out.

delamer
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Re: Opening a new HELOC during the Coronavirus

Post by delamer » Mon Mar 23, 2020 1:52 pm

To back up a bit, why do you think you need liquidity? Are you concerned about job loss or your portfolio tanking? If so, is the HELOC your best protection?

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CT-Scott
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Re: Opening a new HELOC during the Coronavirus

Post by CT-Scott » Mon Mar 23, 2020 1:56 pm

delamer wrote:
Mon Mar 23, 2020 1:52 pm
To back up a bit, why do you think you need liquidity? Are you concerned about job loss or your portfolio tanking? If so, is the HELOC your best protection?
No, I'm not worried about job loss, but I have some home improvements I need to do, and I don't want to dip into my cash reserves, given the current economic situation.

USGrant
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Re: Opening a new HELOC during the Coronavirus

Post by USGrant » Mon Mar 23, 2020 2:47 pm

Hi OP,

Not really an expert here, but can share my experience. Having shopped around a bit last year, I went with 3rd Federal for a HELOC to help finance a new roof. Leaving aside the wisdom of "opening a new HELOC for a liquidity buffer," (not necessarily opposed, just a separate discussion), I'd recommend 3rd Federal if you do decide to pursue opening a HELOC.

*I did not know they cut their rate (in a bad way) by 50 basis points, but in my experience their rate was much generally better than the other digital credit unions, local ones, and big banks. IOW, I think Prime minus .6 is still "good enough" and better than most other lenders. I wouldn't hesitate on that score. EDIT: Sorry misread the new rate. It is just Prime minus .06. Hmm, that is a big difference. I suspect other HELOC lenders might be doing the same, and it could be the case that 3rd Fed is still ahead of the competition. Perhaps not.

*They did a "drive-by" appraisal where someone local took pictures of our house. Much less thorough-going than some other lenders, who also wanted to charge us for that. 3rd Federal did not. Was relatively quick and completely painless; the appraisal came in much higher than what I was expecting/planning on. Not sure what exactly drove the high appraisal.

*They charge $65 per year for the HELOC, starting in Year 2.

*Customer service has been solid. No complaints. Website enables easy online repay with no penalties.

*Bottomline - if you want a HELOC and have some breathing room under 80% based on what might be a relatively quick drive-by appraisal "verdict," I'd definitely consider making 3rd Fed my 1st option. (No, I don't work for them and am not affiliated in any other way besides happy customer, lol.) You might also want to start the process with one or two other lenders, in case the appraisal falls through with 3rd Fed. It does take a while (30 - 45 days I believe).

*I use Santander for primary banking and, based on my general impression of them, would be shocked if they offered a remotely competitive product.

USGrant
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Re: Opening a new HELOC during the Coronavirus

Post by USGrant » Mon Mar 23, 2020 3:03 pm

CT-Scott wrote:
Thu Mar 19, 2020 3:25 pm

1) I've read some recommendations (in this forum) for Third Federal S&L. They have an APR of Prime - 1.01% (currently advertising 2.24%), 10 year Draw Period, 20 year Repayment Period, LTV 80%. If anyone has any other recommendations (especially in light of my other questions), let me know.

2) What's the process for them appraising your house value? See the bottom of this post for more details on why I'm a bit concerned about my house's current value.

3) I worry about a bank reducing/closing a HELOC if things get worse (this happened in 2008). Is there any particular reason why I should not worry about that this time? Or, is there some strategy I might consider to ensure that I'm protected from that? (e.g., immediately write myself a check for the full amount, realizing that this would mean that I'd have to immediately start making monthly payments/interest)

4) Our current mortgage is through Wells Fargo. Would it be better/worse/indifferent for me to get the 2nd mortgage through them? Their rates aren't anything special, but since they were were the ones who held the mortgage the last time we did a refinance, I'm thinking that they may have that last appraisal on file and maybe that would work in our favor for how they'd currently determine its value.

5) I'm assuming that requesting a HELOC will initiate a hard-credit check, right? I believe if that's the case that I can apply for HELOCs from multiple lenders within a certain timeframe without it further damaging my credit score. Let me know if I'm missing anything there.
See my previous post for my perspective. Regarding your specific questions, here's my non-expert view:

#1 - Besides 3rd Fed, I was considering Connexus Credit Union and a local Bank. I did not like the offerings of bigger national banks.

#2 - Drive-by.

#3 - I have no idea if they would "freeze" the untapped equity in your HELOC, but given that they cut the loan rate by a near-full percentage point, it's more likely they'd do it now than they would've say a month ago. If I were you (and you don't have an inherent problem with spending or keeping the extra cash in your savings account to pay the HELOC balance back when things calm down) I would indeed write myself a check for a substantial portion of the loan amount while I was able to. Others can maybe weigh in on more of the possibility of them freezing you out. Don't have experience with it. By doing so, obviously you would prize having the extra liquidity at the cost of 3.19%, right?

#4 - I would go for the best option available, regardless of original mortgage holder. Might be worth asking them if they'd use their last appraisal or require a new one. My guess is they'll want a new one.

#5 - Yes, I believe you're correct. Hard-credit check, but some allowance from multiple sources within given window. Not 100% sure. But I think the potential benefits of getting the HELOC and doing it right (i.e., fast and with multiple parallel options) definitely outweigh any ding to credit score.

Good luck!

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CT-Scott
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Re: Opening a new HELOC during the Coronavirus

Post by CT-Scott » Mon Mar 23, 2020 3:14 pm

USGrant, thanks for the thoughtful reply.

Yes, the 3.19% rate would likely be "worth it" to me to have some extra cash on hand. It sounds like this will be 3+ week process, so we'll see how I'm feeling about the economy once that all goes through (assuming my appraised value comes in high enough for it to come through at all).

After seeing Santander's 4% actual rate for me, I decided to go ahead and apply online with Third Federal.

So, if I want to go through the whole process with more than one lender, I guess I would be supplying both with copies of my W-2's, etc.? By doing that am I telling them that I'm *definitely* going to use them, or do I just give the multiple lenders all of that info and then at some point later they will come back to me telling me what they've actually approved me for, and then at that time I would choose which one I want to go with?

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Kenkat
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Re: Opening a new HELOC during the Coronavirus

Post by Kenkat » Mon Mar 23, 2020 3:19 pm

I’ve had a HELOC with Third Federal for many years and I am locked into the Prime - 1.01% with the same basic terms as you were looking at. The $65 annual fee was waived for me, possibly because I already have my mortgage with them.

So I’d recommend them but it stinks that you might have just missed out on the Prime - 1.01%. And I wouldn’t love the $65 fee for something I might not use. But nothing but positives for Third Federal overall.

On the appraisal, you never really know until you try. When I first got my HELOC with Third Federal shortly after we bought our house, I asked for $50k and they said they could do $40k. Fine. When the original hit the end of life, they offered a new one for $100k so that’s where we are at now. We’ve never needed anywhere close to that but have used it for some capital type expenses that were nice to pay off over time.

It might be worth calling them and saying you were in the process of applying and noticed the terms had changed and you wanted to check to see if you were doing anything wrong. (this is a nice way to ask if there’s any way to get the original deal)

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CT-Scott
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Re: Opening a new HELOC during the Coronavirus

Post by CT-Scott » Mon Mar 23, 2020 3:24 pm

Kenkat wrote:
Mon Mar 23, 2020 3:19 pm
It might be worth calling them and saying you were in the process of applying and noticed the terms had changed and you wanted to check to see if you were doing anything wrong. (this is a nice way to ask if there’s any way to get the original deal)
Actually, I did something like that on Friday. I called and an automated system said that there was a long wait time, but I could enter my phone # and I'd keep my place in line and someone would call me back. When they did, I asked what was going on with their site/rates and asked if the rate increase was a temporary one meant to allow them to deal with a temporary increase in demand, or if she thought it was their "new normal" rate. She said the latter. :(

chevca
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Re: Opening a new HELOC during the Coronavirus

Post by chevca » Mon Mar 23, 2020 3:26 pm

CT-Scott wrote:
Mon Mar 23, 2020 1:56 pm
delamer wrote:
Mon Mar 23, 2020 1:52 pm
To back up a bit, why do you think you need liquidity? Are you concerned about job loss or your portfolio tanking? If so, is the HELOC your best protection?
No, I'm not worried about job loss, but I have some home improvements I need to do, and I don't want to dip into my cash reserves, given the current economic situation.
Why not just hold off on those and see how this all plays out? They can't be that urgent, or they would have been done or started by now, right?

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Kenkat
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Re: Opening a new HELOC during the Coronavirus

Post by Kenkat » Mon Mar 23, 2020 3:27 pm

CT-Scott wrote:
Mon Mar 23, 2020 3:24 pm
Kenkat wrote:
Mon Mar 23, 2020 3:19 pm
It might be worth calling them and saying you were in the process of applying and noticed the terms had changed and you wanted to check to see if you were doing anything wrong. (this is a nice way to ask if there’s any way to get the original deal)
Actually, I did something like that on Friday. I called and an automated system said that there was a long wait time, but I could enter my phone # and I'd keep my place in line and someone would call me back. When they did, I asked what was going on with their site/rates and asked if the rate increase was a temporary one meant to allow them to deal with a temporary increase in demand, or if she thought it was their "new normal" rate. She said the latter. :(
I know mortgage rates are dropping lately and with all the volatility and the Prime Rate going so low, they are probably worried about getting upside down on the rate spreads.

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CT-Scott
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Re: Opening a new HELOC during the Coronavirus

Post by CT-Scott » Mon Mar 23, 2020 3:45 pm

My theory: There's already been talk of temporarily blocking banks from foreclosing on people affected by COVID-19. The next step will be for someone out of work because of COVID-19 to not make their mortgage/loan payments. If I was running the loan department at a bank, I'd be very worried about this.

Count of Notre Dame
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Re: Opening a new HELOC during the Coronavirus

Post by Count of Notre Dame » Mon Mar 23, 2020 3:59 pm

I view a HELOC as an emergency fund and opened one for the 80-90 LTV of my home on poor terms (~6%) with BBVA Compass in October 2019. It's enough of a fund to cover about my two years worth of my after-tax salary.

mikep
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Re: Opening a new HELOC during the Coronavirus

Post by mikep » Mon Mar 23, 2020 4:14 pm

If you have your house titled in a revocable living trust, 3rd federal will not work with you at all. Most banks like this include a deed update as part of the closing paperwork and you're on your own to fix it after, but not them.

That and the rate hike makes me look elsewhere. Right now I'll probably go with CA coast CU, as they have low rates on "term buster" 1st mortgages as well, maybe I'll refinance to a 5 year 2.75% and add the HELOC at prime rate (with a 4.25% floor however) as backup.

Kaizen Soze
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Re: Opening a new HELOC during the Coronavirus

Post by Kaizen Soze » Mon Mar 23, 2020 4:17 pm

No need to apply for multiple HELOCs. Find the one with the right terms for your situation and apply to that one.

I recently opened a HELOC with BoA instead of 3rd Federal. 3rd Federal has an annual fee, closing costs in my state, but also has the best long-term rate at Prime - 1.01%.
BoA has no annual fee, no closing costs, and the best 12mo teaser rate at Prime - 1.51%. After 12mo the rate is Prime + 1% (it’s possible to get it down to just Prime), the long term rate depends on the initial draw and preferred status with the bank. I’m already a customer for over 20yrs so the relationship makes it easier (transferring funds, established online account, and no appraisal)
I only need the HELOC as a short term emergency fund so made sense to go for the best teaser rate, but 3rd Federal looks to be a great choice for a long term HELOC if you can get the fee waived.

Extra tip: I took the initial draw and opened two new bank accounts for deposit bonuses. Gotta maintain the HELOC balance for 90 days to get the initial draw discount and gotta maintain the bank account balances for 90 days to get the bonuses. Should work out nicely for $820 pre-tax profit.

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CT-Scott
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Re: Opening a new HELOC during the Coronavirus

Post by CT-Scott » Mon Mar 23, 2020 5:04 pm

Kaizen Soze wrote:
Mon Mar 23, 2020 4:17 pm
No need to apply for multiple HELOCs. Find the one with the right terms for your situation and apply to that one.
Well, in my case, part of the reason I'm thinking of going through the process with multiple banks is because of my concern about the appraisal.
Kaizen Soze wrote:
Mon Mar 23, 2020 4:17 pm
I recently opened a HELOC with BoA instead of 3rd Federal. 3rd Federal has an annual fee, closing costs in my state, but also has the best long-term rate at Prime - 1.01%.
BoA has no annual fee, no closing costs, and the best 12mo teaser rate at Prime - 1.51%. After 12mo the rate is Prime + 1% (it’s possible to get it down to just Prime), the long term rate depends on the initial draw and preferred status with the bank. I’m already a customer for over 20yrs so the relationship makes it easier (transferring funds, established online account, and no appraisal)
As previously noted, that Third Federal rate you're quoting is, sadly, no more. I actually did call BoA, but I don't currently have an account with them, and the person I spoke with quoted me a rate of 2.74% for the first 12 months, then Prime + 1.25%. Meh.

Kaizen Soze
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Re: Opening a new HELOC during the Coronavirus

Post by Kaizen Soze » Mon Mar 23, 2020 6:06 pm

You get a rate discount for setting up automatic payments and another 10bps per $10k of initial draw with a $100k line.

There’s a downside, $450+doc stamp cost penalty for closing the HELOC within 3yrs.

2.74% is Prime - 1.51% because of an update lag. It should drop to 1.74% soon.

kd2008
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Re: Opening a new HELOC during the Coronavirus

Post by kd2008 » Mon Mar 23, 2020 6:25 pm

Kaizen Soze wrote:
Mon Mar 23, 2020 6:06 pm
You get a rate discount for setting up automatic payments and another 10bps per $10k of initial draw with a $100k line.

There’s a downside, $450+doc stamp cost penalty for closing the HELOC within 3yrs.

2.74% is Prime - 1.51% because of an update lag. It should drop to 1.74% soon.
it is now showing 1.74% for my state

bodgiesd
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Re: Opening a new HELOC during the Coronavirus

Post by bodgiesd » Tue Mar 24, 2020 4:20 am

I have a HELOC with Wells Fargo and there was no appraisal fee, or no one went to my house to apprise it. They have my mortgage.
My variable rate is 3.8 on a $50k withdrawal ($200k) limit. No yearly fees.
You fill up the online application and someone will call you and follow up with all the paperworks needed.
It took 3 weeks back and forth emails as I kept missing the calls and wasn’t really needing the money so I procrastinated.
I should have checked third federal and others for their rates, as I didn’t know I was ever going to withdraw from my HELOC.

bikesandbeers
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Re: Opening a new HELOC during the Coronavirus

Post by bikesandbeers » Tue Mar 24, 2020 5:37 am

if you are only using this for some short term liquidity, than plus or minus .5% shouldn't make a huge difference. You can do the math based on how much balance you expect to carry for how long. One question is how essential are these home improvements? Is it upgrades to critical systems that are failing or just aesthetic remodel? Sometimes you can get 0% for two years from Home Depot or Lowes.


My Heloc is a local credit union where I have another account, and there were no origination fees or closing costs, there is a fee if I close it out before 5 years, but no fee for carrying a zero balance.Its very easy to Transfer money in and out to my other accounts, although they did give me a book of checks.
We had a drive by appraisal, but we were clearly under 80% LTV. You might have to list out specific the improvements you've made to get them to do anymore, however, in this current environment, they may be extra conservative on the valuations. We were asked for a specific amount we wanted, not an automatic 80% of whatever we appraised for.

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CT-Scott
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Re: Opening a new HELOC during the Coronavirus

Post by CT-Scott » Wed Mar 25, 2020 3:08 pm

So, the HELOC is intended for a couple of purposes:
A) Some needed repairs and cosmetic improvements to get my house ready to sell.
B) Down-payment on a new house, so as to allow us the flexibility to purchase/move without a contingency for selling our current house.

FWIW, I started down the path with Santander, but ran into two issues:
1) *After* going through the initial online loan application process, I got some initial electronic paperwork the next day, and it was showing a higher rate than was quoted on their website.
2) One of pieces of paperwork indicated that they don't do HELOCs for properties with underground fuel storage tanks. I have an underground 500 gallon propane tank.

So, now I guess I'll move on to try a different lender, and will probably call them first to point out my underground fuel tank.

mikep
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Re: Opening a new HELOC during the Coronavirus

Post by mikep » Fri Mar 27, 2020 10:22 am

It appears that Consumers Credit Union (IL) has the new lowest long term rate for a HELOC at Prime - 0.5% up to 80% CLTV. Downside for now is they charge for an appraisal and have a 4% floor, but have no early termination fees.
I'm checking with them if they will require an appraisal for 35% CLTV and if they lend in my state.
I can't even get through the Bank of America number to talk to someone, I'd rather not deal with them. The "talk to a lending advisor" 800 number disconnects after a minute of silence. If this is how they will be, forget it.

EDIT - looks like they only offer Home Equity loans in Illinois and Wisconsin.

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CT-Scott
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Re: Opening a new HELOC during the Coronavirus

Post by CT-Scott » Mon Apr 06, 2020 2:29 pm

Sorry, I lost track of this thread, so I'm just now posting back.

I decided to make a call to Wells Fargo, since they have my primary mortgage. The guy I spoke with indicated that their online application had some issues, so he recommended that I go through the application process over the phone with him. I needed to get to a meeting, so I told him I'd think about it and call him back in a couple of days. But I wasn't impressed with what he was quoting me. Basically, they were offering Prime + 0.75% (which was a total of 4% as of the day we spoke). Then, there was a 1st year discounted rate if you took out some money right away (and needed to specify the amount before closing on the HELOC). Using a $50K HELOC as an example, the discount for taking out $10K would have been 0.26% (so a 1st-year rate of 3.74%), and the discount for the full $50K would have resulted in a 1st-year rate of 2.74%.

So, with Wells Fargo, if I took the full $50K up-front, that 2.74% rate would have been better than Third Federal's rate, but I would have had to do it up-front, and the rate would have been worse than Third Federal's rate after the 1st year. If I was going to use it for some home repairs/etc., and then use it towards a down payment on the new house, and then pay it off in full as part of closing on the current house, then it's possible that the Wells Fargo option could make sense.

But, as all of that was happening, I got a status update email from Third Federal and, when I logged in, I saw that they had already completed my appraisal. I was pretty shocked how quickly that happened. It had some photos of my house, taken from the street, so they found somebody to do a "drive by" pretty quickly. The appraisal came in just a bit higher than needed to warrant a $50K HELOC with an LTV under 80% (funny how that usually seems to happen). So, at this point, I'm probably going to just go with Third Federal and save myself the trouble of submitting additional applications with other lenders. Technically, I'm still waiting for final approval from their Underwriting department, which I was told today could take 14 business days.

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